SEC Warns Asset Managers on Climate Engagement Disclosure Obligations

The US Securities and Exchange Commission (SEC) has decided not to pursue charges against major asset managers over their engagement with Climate Action 100+ ahead of ExxonMobil’s 2021 annual shareholder meeting. However, the regulator has warned that investors must carefully assess their disclosure obligations when participating in organised shareholder engagement initiatives.

In a Report of Investigation, the SEC highlighted concerns that certain activities undertaken by large investors could affect their eligibility to use simplified reporting requirements for their shareholdings. The report specifically examined engagement with Climate Action 100+, an investor initiative focused on addressing climate-related financial risks. BlackRock, Vanguard and State Street were among the asset managers discussed in connection with the case.

The issue dates back to ExxonMobil’s 2021 shareholder meeting, when BlackRock, Vanguard and State Street supported some director nominees put forward by activist investor Engine No. 1. The campaign called for changes in ExxonMobil’s approach to the energy transition, with Climate Action 100+ also aligned with the effort. The episode became a significant point of debate over how investors should consider environmental, social and governance factors in their investment decisions.

The SEC stated that participation in organisations seeking to influence corporate control, including through the election of dissident directors, could affect an investor’s eligibility for certain reporting exemptions. However, the regulator clarified that shareholders retain the right to express their views on specific issues and explain their voting decisions.

The development highlights the importance of regulatory compliance, transparency and careful assessment of disclosure requirements in institutional investor engagement, particularly where coordinated shareholder initiatives may influence corporate governance decisions.